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General framework

Legal framework

What is the legal framework in your jurisdiction covering the behaviour of dominant firms?

In Ecuador the relevant legislation is:

  • the Organic Law for the Regulation and Control of Market Power, also known as the Anti-Trust Law (Law, MPL or LORCPM). The Law was published in the Supplement of the Official Gazette No. 555 on 13 October 2011;
  • the general Regulation to the MPL approved on 23 April 2012 (Regulation or RLORCPM); and
  • the Andean Community Decision No. 608 (Decision), which has the status of an international treaty and comprises the guidelines to promote and protect free competition within the Andean Community.

Both the Law and the Decision set forth the legislation applying specifically to the behaviour of dominant firms within Ecuador and the Andean Community, respectively.

Definition of dominance

How is dominance defined in the legislation and case law? What elements are taken into account when assessing dominance?

The Ecuadorian Antitrust regulation has defined ‘market power or dominant position’ as the undertaking’s ability to act independently from its competitors, buyers, clients, suppliers, consumers, dealers and any other actors that participate in the market. Additionally, it has established that the capacity to significantly influence the market is another factor. For determining dominance, the Competition Authority would consider, among other factors, the market share of the firm, ‘the ability to unilaterally fix prices’, the capacity to ‘reduce output’, the capacity of other actors to counterbalance a firm’s ability to fix prices or reduce output, a competitor’s relative market position, the contestable portion of the market, the structure of supply and demand of the relevant product or service, the existence of entry or exit barriers and a firm’s recent past behaviour.

Purpose of legislation

Is the purpose of the legislation and the underlying dominance standard strictly economic, or does it protect other interests?

The object of the Law seeks to protect market efficiency, fair trade, consumer welfare and general interest of society through the recognition of the human being as a subject and object of the economic system. Hence, the object of legislation is not strictly economic, as it expressly protects other interests, such as the general interest of society.

Sector-specific dominance rules

Are there sector-specific dominance rules, distinct from the generally applicable dominance provisions?

Article 9 of the Law is not sector-specific and, thus, applies generally to all markets. However, there are specific regulations in Ecuadorian legislation that apply, in complement to the general rule, upon certain sectors of the economy. For instance, the pharmaceutical industry has a specific regulation to determine the relevant market and the market share of a firm. Notwithstanding this situation occurring in practice, pursuant to article 35 of the Law and article 49 of the regulations to the Law, sector-specific regulations for the application of the Law in relation to abuse of market power and other anticompetitive conducts shall be issued by the Regulation Board, the regulatory body in charge of competition regulation.

Exemptions from the dominance rules

To whom do the dominance rules apply? Are any entities exempt?

The Law of Market Power Control, as set forth in article 2, applies to undertakings (ie, corporations, associations or individuals, entities), private, public, national or foreign, including non-profit organisations with economic activities within the Ecuadorian market or abroad, as long as such activity has effects on the Ecuadorian market.

Transition from non-dominant to dominant

Does the legislation only provide for the behaviour of firms that are already dominant?

Ecuadorian legislation forbids and sanctions abuse of market power. Thus, merely being a dominant firm or becoming a dominant firm is not per se prohibited.

Article 7 of the Law, second paragraph, states the following: ‘obtaining or reinforcing market power is not a threat to competition’. With this line of reasoning, article 9 of the Law includes a catalogue of types of conduct that are considered an abuse of market power. Hence, the Law does not cover types of conduct through which a non-­dominant company becomes or attempts to become dominant; obtaining or reinforcing market power is not in itself prohibited.

Collective dominance

Is collective dominance covered by the legislation? How is it defined in the legislation and case law?

Yes, collective dominance is provided for in the Law. There is no specific provision that defines collective dominance, however, the definition of abuse of market power established in article 9 of the Law includes ‘conducts performed by one or multiple undertakings acting on the basis of their market power’.

Dominant purchasers

Does the legislation apply to dominant purchasers? Are there any differences compared with the application of the law to dominant suppliers?

Yes, the legislation applies to dominant purchasers as well as to dominant suppliers. Article 9 of the Law contains a non-exhaustive list of anticompetitive conducts. Some of these are geared specifically to purchasers or suppliers, however, most of the ‘exploitative’ conducts refer to both purchasers and suppliers.

Market definition and share-based dominance thresholds

How are relevant product and geographic markets defined? Are there market-share thresholds at which a company will be presumed to be dominant or not dominant?

Article 5 of the Law provides a definition of relevant market and states that it is composed of the product market and the geographic market. In relation to the product market the Law states that the product market comprises at least the good or service subject to investigation and its substitutes. It also states that in order to analyse substitution the Authority shall evaluate among other factors, the preferences of clients or consumers, the characteristics, uses and price of the substitutes, substitution costs, as well as technological possibilities and time required for substitution. Pursuant to the same provision, the geographic market comprises the set of geographic zones where the alternative supply sources of the relevant product or service are located. In order to analyse the supply alternatives, the Authority will evaluate among other factors, transportation costs, sale modalities and existing barriers to trade. Furthermore, Regulation 011 of the Regulation Board establishes criteria to define a relevant market, including a set of economic tools, such as the ‘small but significant and non-transitory increase in price’ test, that shall be used to define the relevant product and geographic markets. These criteria in principle should be taken into account when defining relevant markets in abuse of market power investigations, as well as in merger control cases. Notwithstanding, the intendancies that deal with abuse of market power investigations and merger control cases operate absolutely independently, which could result in certain differences in the application of the criteria. There are not enough relevant cases that have been taken to and resolved by the Contentious Administrative Tribunal, thus, we cannot comment on the approach taken by the court.

There are no market-share thresholds (in the legislation or case law) at which a company will be presumed to have market power. Market share is only one of the criteria used in order to analyse market power pursuant to article 8 of the Law.

Abuse of dominance

Definition of abuse of dominance

How is abuse of dominance defined and identified? What conduct is subject to a per se prohibition?

The regime of abuse is based on the anticompetitive effects on the market that specific conduct may have. The Ecuadorian Law establishes, as a general provision, that abuse is produced ‘when one or more undertakings, on the basis of their market power by any means, prevent, restrict, falsify or distort competition or adversely affect economic efficiency or general welfare’. The wording of the provision seems to hint that effects must be shown.

The Law does not provide for an effects-based or form-based approach. However, article 4 of the regulations to the Law provides that in order to determine the restrictive character of the conducts and practices of undertakings, the Authority shall analyse their behaviour on a case-by-case basis, evaluating if such conduct or practices have the object or effect to effectively or potentially prevent, restrict, cheat or distort competition, or negatively affect economic efficiency or the general welfare or the rights of consumers and users. From this provision we understand that many types of defences may be available. This provision seems to allow both an effects-based and form-based approach.

The legislation and case law on abuse of market power do not specifically follow an effects-based or form-based approach, however, several of the 23 conducts specifically listed in article 9 of the Law do provide for infringement of the law in the case of occurrence of anticompetitive effects or the potentiality of such effects. Thus, certain conducts could be found to constitute abuse of market power in the absence of actual effects owing to their potentiality.

Exploitative and exclusionary practices

Does the concept of abuse cover both exploitative and exclusionary practices?

The concept of abuse in article 9 of the Law covers both exclusionary and exploitative practices. The list of specific abusive conducts of article 9 describes conducts that are exploitative and conducts that are exclusionary. Article 9 of the Law also contains the specific abusive conduct of ‘establishment of exclusionary or exploitative practices’.

Link between dominance and abuse

What link must be shown between dominance and abuse? May conduct by a dominant company also be abusive if it occurs on an adjacent market to the dominated market?

The Law does not expressly state that there must be a causal link between dominance and abuse, however, as the law prohibits the ‘abuse of market power’, we can conclude that the abusive conduct needs to occur through the exercise of market power or dominance, thus, a causal link must exist between market power and abuse.

Defences

What defences may be raised to allegations of abuse of dominance? When exclusionary intent is shown, are defences an option?

The Law does not contain a specific provision stating the general defences that may be raised to allegations of abuse of dominance. However, much can be inferred from the wording of article 9.

In the first place, the general provision of article 9 states at the end that abuse of market power occurs when one or many dominant firms ‘by any means, prevent, restrict, cheat or distort competition, or affect negatively economic efficiency or the general welfare’. The tense of the verbs contained in the quote hints that an actual effect must have occurred, thus, it could be understood that defences denying these harmful consequences should be accepted (including a defence by denying harm to economic efficiency and perhaps one by evidencing efficiency gains). However, owing to the wording of the 23 specific abusive conducts listed and described in article 9, we could also infer that some conducts may have specific defences available, and that some conducts do not need actual effects occurring to be penalised. Many of the listed conducts refer to ‘unjustified’ conducts, potentially allowing for a wide range of justifications, a couple of them specifically provide for the efficiency gains defence, and others are considered to occur when they generate actual or potential harmful effects (the three conducts that provide this are exclusionary conducts), hinting that in such cases the exclusionary intent may be sufficient to consider the conduct abusive. Other defences may be possible depending on the case, including technical defences.

Furthermore, article 4 of the regulations to the Law provides that in order to determine the restrictive character of the conducts and practices of undertakings, the Authority shall analyse their behaviour on a case-by-case basis, evaluating if such conducts or practices have the object or effect to effectively or potentially prevent, restrict, cheat or distort competition, or affect negatively economic efficiency or the general welfare or the rights of consumers and users. From this provision we understand that many types of defences may be available.

A technical justification defence was presented in the leading case of abuse in Ecuador (CONECEL 2014). In the case, the dominant firm in the mobile telecommunications market, CONECEL, argued that the existence of an exclusivity clause was necessary for technical reasons that guaranteed the quality of the services provided. It is important to recall that this argument was rejected only because CONECEL, in the view of the authority, did not prove the technical necessity of such an exclusivity clause. This shows that a defence based on technical justifications might be accepted.

Specific forms of abuse

Types of conduct Types of conduct

Indicate to what extent the following types of conduct (questions 14–25) are considered abusive. Mention briefly any leading precedents on, and the relevant tests for, assessing the categories of conduct: Rebate schemes

No. 16 of article 9 of the MPL expressly forbids granting conditional rebates or rebates subject to a payment of discount cards or fidelity cards. We are not aware of an investigation resolved under such conduct.

Tying and bundling

Under section 8 of article 9 of the MPL, such types of conduct may be considered abusive. To date, we are not aware of an investigation relating to tying and bundling that has reached a resolution stage. However, several processes are in the investigation stage.

Exclusive dealing

Under sections 11 and 19 of article 9 of the MPL, unjustified exclusive dealing conducts are considered abusive. To date, we are not aware of an investigation relating to exclusive dealing, non-compete provisions or single branding that has reached a resolution stage.

Predatory pricing

The LORCPM considers predatory pricing an abusive practice. Article 9, clause 4 of the Law prohibits ‘predatory or exploitative price fixing’. There is no case law regarding this matter and no benchmarks or circumstances have been established.

Although there are no resolved cases under this Law, under Decision 608 the competent authority investigated whether ARCA incurred predatory pricing in the soft drinks market in the Coca-Cola case. The authority found that ARCA was dominant in the relevant product market. However, it decided that the company did not commit an abuse of dominant position as its prices were not predatory. In the analysis, the authority performed a study on the firm’s price evolution during the period of time under investigation and compared those prices with those of other countries in the region and concluded that the variation of prices responded to market reasons and were duly justified.

Price or margin squeezes

Price squeezes are not expressly included in the catalogue of abusive practices contained in article 9 of the MPL. However, the aforesaid catalogue includes a provision for which the authority may investigate any conduct with exclusionary or exploitative effects, thus, price squeezes would presumably fall into the general and broad provision. No price squeeze investigation has been conducted by the authority up to the present time.

 

Refusals to deal and denied access to essential facilities

Both refusal to deal (refusals to satisfy demand or the refusal to supply goods or services) and denial to essential facilities are provided for as abusive practices in article 9 of the Law when they are unjustified. Although the leading case of abuse in Ecuador, Claro Ecuador SA (2014), considered an analysis of certain aspects of essential facilities, the authority sanctioned the dominant firm based on different types of conduct, which were the imposition of unjustified exclusivity contracts and the persuasion on third parties not to offer products or services to other undertakings.

Predatory product design or a failure to disclose new technology

These conducts are not per se regulated in the Ecuadorian legislation and there have not been investigations in Ecuador related to predatory product design, failure to disclose new technology or technological tying.

Price discrimination

Price discrimination is considered to be an abuse of dominant position according to Ecuadorian Law. Article 9, clause 7 establishes that both pricing and non-pricing discrimination might constitute prohibited abuse practices. Both types of discrimination might fall under article 9, clause 6, which prohibits ‘unjustified price discrimination, conditions or other forms of price fixing’ and also under article 9, clause 7, which sanctions ‘the application, in commercial or service relations, of dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage’. Since the entry into force of LORCPM in October 2013, no cases regarding discrimination have been resolved.

Exploitative prices or terms of supply

Exploitative prices or exploitative terms of supply are included in the catalogue of abusive practices contained in article 9 of the MPL. As part of the enforcement activities of the Superintendency of Control of Market Power (SCPM), a guideline of supply agreements has been enacted, through which the authority is trying to reduce exploitative terms of supply and prices.

We are aware of several existing investigations that the authority is conducting in reference to exploitative prices and terms of supply, however, no details have been disclosed at the moment.

Abuse of administrative or government process

Clause 18, article 9 of the LORCPM sanctions the unjustified misuse of administrative or legal procedures, which results in restricting access or expansion of actual or potential competitors in the market. Under this novel law, the SCPM has not resolved any cases regarding the abuse of government process. Under the previously applicable regulation (Decision 608), two relevant cases in the pharmaceutical market deserve attention. These are Susej SA v Eli Lilly (2011) (Eli Lilly case) and the Pfizer-Sildenafil case (2011). The Pfizer-Sildenafil case was the first case on dominant position abuse through the abuse of administrative and judicial processes. The authority sanctioned the dominant firm, which had imposed a series of precautionary measures with the purpose of maintaining its dominance in the market of Sildenafil production in the national territory.

In the Eli Lilly case, Eli Lilly was accused of having unfairly abused government processes through the implementation of precautionary measures that prevented SUSEJ from commercialising products with the active ingredient olanzapine. The antitrust authority rejected SUSEJ’s arguments and determined that Eli Lilly did not abuse its dominant position. To reach this conclusion, the authority analysed the ultimate goals of the government processes that were initiated, the number of judicial actions that were presented under the same argument, whether those actions were initiated under the principles of justice administration and the effects that the precautionary measures had on the market. After performing the test under those parameters, the authority concluded that Eli Lilly did not abuse its dominant position. Eli Lilly had a market share of 84.5 per cent in the private market of medicines that have the active ingredient olanzapine.

Mergers and acquisitions as exclusionary practices

Ecuadorian legislation does not expressly regulate mergers and acquisitions as a type of exclusionary practice under the provisions of abuse of market power (article 9 of the MPL). Mergers and acquisitions are regulated through article 14 of the MPL that regulates concentrations. Article 14 provides ex ante control (before the concentration takes place) and is not subject to the market power condition contained in article 9, but to thresholds contained in article 16.

The second paragraph of article 7 of the Law states that:

Obtaining or reinforcing market power does not infringe against competition, economic efficiency or the general welfare. However, obtaining or reinforcing market power, in a manner that impedes, restricts, cheats or distorts competition, infringes against economic efficiency or the general welfare or the rights of consumers and users will be subject to control, regulation and, if applicable, subject to the penalties established in the law.

Notwithstanding this provision, there is no specific provision establishing an ‘anticompetitive’ gaining of market power as an anticompetitive conduct, nor a provision establishing a punishment.

Other abuses

Ecuadorian legislation provides, in the catalogue of types of conduct that are considered as forms of abuse contained in article 9 of the Law, among others, the following:

  • abuse in the case of economic dependency through the termination of commercial agreements without prior notice or other conduct;
  • implementation of unjustified cross-subsidies; and
  • and unjustified resale price fixing.

Enforcement proceedings

Enforcement authorities

Which authorities are responsible for enforcement of the dominance rules and what powers of investigation do they have?

The Superintendency of Market Power Control is the highest administrative authority with broad powers to investigate and sanction abuse of market power. The Superintendency comprises the following authorities: Superintendent of Market Power Control, First Instance Commission and intendancies.

As provided in sections 48 and 49 of the MPL, the Superintendence authority has the following powers:

  • to conduct abuse of market power investigations ex officio or ex parte;
  • to resolve investigations and, if applicable, order pre-emptive measures, sanctions and remedial actions; and
  • for the purposes of the investigation, the authority can:
  • request any information and documents relevant to the investigation from denounced parties, defendants and third parties, including, but not limited to, financial statements, accounting books, correspondence and magnetic data;
  • order testimony of the defendants and third parties in the presence of legal counsel, through depositions that are conducted by designated members of the Superintendency; and
  • enter into the business place of the defendant, with or without previous notice, in order to examine books, records and any documents relevant to the investigation, as well as taking any voluntary testimony of the people that are on the premises. During the inspection, any magnetic or physical documents can be seized or a copy of documents can be obtained.

The Abuse of Market Power Intendant, who is an undersecretary or investigation authority (appointed by the Superintendent), conducts the investigation process and if there are grounds, the Intendant will prosecute the defendants before the First Instance Commission. If the ruling of the First Instance Commission is challenged, then it has to be resolved by the Superintendent of Market Power Control, as the highest administrative authority and final administrative instance.

 

Sanctions and remedies

What sanctions and remedies may the authorities impose? May individuals be fined or sanctioned?

As provided in article 73 of the MPL, the Superintendency may order remedial actions, such as: the ceasing of the abusive practice under certain conditions or terms; and executing contracts or conducting activities that aim to re-establish the competitive process under conditions or terms imposed by the authority.

Besides the remedial actions, the Superintendency may also impose economic sanctions for abuse of market power, under the following terms (see article 79 of MPL): if the abusive conduct was considered severe, the fine can be up to 10 per cent of the turnover of the undertaking (gross sales with-out VAT); and if the abusive conduct was considered very severe, then the fine can be up to the 12 per cent of the turnover of the undertaking.

It is worth stating that the legal representatives of the undertaking and any individual who has been involved in the decision-making (regarding the abusive conduct), may be sanctioned with a fine equal to 500 basic salaries (at the time of writing, the basic salary is equal to US$386).

In 2014 the Superintendency (the Claro case) ordered a fine of US$138.5 million against a dominant telecommunications firm, along with remedial actions. In 2016 an additional fine of US$82 million was imposed for refusal to comply with some remedial actions, specifically for not formally amending the exclusivity clauses contained in their lease contracts with the owners of the real estate where their towers are located.

Ecuadorian legislation does not contain an express provision regarding the application of structural remedies in abuse of market power investigations nor the guidelines to apply such remedies (ie, if no equal behavioural measure can be adopted). We are not aware of any structural remedy ordered by the authority as a result of abuse of market power investigations.

Enforcement process

Can the competition enforcers impose sanctions directly or must they petition a court or other authority?

Yes. The competition enforcer can impose sanctions directly.

Enforcement record

What is the recent enforcement record in your jurisdiction?

The enforcement record in Ecuador has not been calculated and is not readily available. Resolutions of the Authority, although public, are generally not readily available in online sources or other means. Although Resolutions are occasionally available in printed versions at the Authority’s facilities, no structured work has been performed to catalogue and publish the Resolutions in a readily available source. Notwithstanding, we understand that there are efforts underway by the Authority to achieve this in the near future. We believe that when this is achieved enforcement records and other information useful as precedents will be available.

Contractual consequences

Where a clause in a contract involving a dominant company is inconsistent with the legislation, is the clause (or the entire contract) invalidated?

As a general rule, the clause will be invalidated. However, if the agreement is also regulated through article 11 of the MPL, as a banned horizontal or vertical agreement, then the entire agreement may be considered null and void.

 

Private enforcement

To what extent is private enforcement possible? Does the legislation provide a basis for a court or other authority to order a dominant firm to grant access, supply goods or services, conclude a contract or invalidate a provision or contract?

The LORCPM grants broad powers and attributions to the SCPM, including enforcement action during the investigation and after a final decision has been produced. These powers and attributions include the access to infrastructure during and after the investigation. Further, article 37 of the LORCPM establishes that the SCPM has the attribution to ‘correct … the abuse of market power’, suggesting that it could order the necessary measures in order to achieve such a goal. In the Claro case, the SCPM ordered the dominant firm to eliminate all exclusivity clauses in contracts for rental of real property. The Law does not provide for private enforcement possibilities (other than to privately claim damages).

Damages

Do companies harmed by abusive practices have a claim for damages? Who adjudicates claims and how are damages calculated or assessed?

Any person or entity that has suffered losses or damages due to conduct that is sanctioned by the Law has the right to reparation for such losses or damages. For this purpose, the affected person might initiate proceedings in an ordinary court under the general rules of Ecuadorian law through a summary proceeding. The right to initiate proceedings expires in five years counted from the decision imposing the sanction being final and enforceable.

Appeals

To what court may authority decisions finding an abuse be appealed?

The decisions of the First Instance Commission may be appealed before the Superintendent, in administrative venue, as provided in article 67 of the MPL. However, the Superintendent decision may be recurred before the Administrative Tribunal, throughout an extraordinary action.

Unilateral conduct

Unilateral conduct by non-dominant firms

Are there any rules applying to the unilateral conduct of non-dominant firms?

Not applicable.

Update and trends

Update and trends

Updates and trends

In 2018, a new Superintendent will be appointed.